Good news: Computers might force Treasury to keep making payments even if debt ceiling is reached

posted at 8:20 pm on July 8, 2011 by Allahpundit

If Treasury were to decide to delay some payments, one option could be to postpone a disbursement of more than $49 billion to Social Security recipients that is due on August 3.

It would be a politically explosive step but one that could allow the government to temporarily pay bondholders to try to avoid foreign investors dumping U.S. Treasuries and the dollar…

Steve McMillin, a former deputy director of the White House Office of Management and Budget under Bush, said Treasury has options but most of them are “pretty ugly.”

If Treasury were to decide to delay payments, it would need to re-program government computers that generate automatic payments as they fall due — a massive and difficult undertaking. Treasury makes about 3 million payments each day.

Is there enough time to do that? Doubtful: There’s barely enough time to get a deal passed through both houses of Congress, even if they reach the framework of an agreement this weekend. By Major Garrett’s calculation, it’ll take 16 or 17 working days until it’s passed and ready for Obama’s signature, and that assumes no speed bumps along the way. No failed votes in the Senate, no meltdown in the House because Boehner can’t assemble a coalition of moderate Republicans and Democrats to get to 218. (Pelosi’s drawn the line at cuts to entitlements, so who knows where that leaves Boehner with the Blue Dogs.) No wonder the Speaker’s started to make noise about how default would put us “in an awful lot of jeopardy — and puts our economy in jeopardy — risking even more jobs.” That’s his signal to House Republicans that some of them will have to cast a very tough vote, whatever it means for their primary chances next year.

I think you’ll see two things happen next week if they make a deal on Sunday. First, if Boehner can get Paul Ryan to support the bargain, he’ll roll him out publicly for a media tour to make the pitch to grassroots conservatives that default is simply not an option. Ryan’s made that point in the past, actually — “Will the debt ceiling be raised? Does it have to be raised? Yes” — but endorsing it in the abstract and endorsing it when it comes packaged with a weak entitlements deal that might not be to his liking are two different things. No one has more credibility on spending on the right than him, so if he’s onboard, Boehner’s task with tea-party Republicans will be easier. And he has some skin in this game himself: His own Path to Prosperity would require the debt ceiling to rise repeatedly over the next decade.

Second, thanks to the horrifying new unemployment numbers, Democrats will be even more insistent on delaying spending cuts until a real recovery has begun. That’s bad, bad news for Boehner, who’s already under suspicion from conservatives for how small the immediate cuts were in the 2011 budget deal. Prominent righties are already warning him, in fact, not to “sell out” the party by agreeing to, among other things, “spending cuts [that] are minor, vague, and pushed off into the speculative future.” For some people, it doesn’t matter what deal Boehner strikes — anything short of $6 trillion in cuts, no tax hikes, a balanced-budget amendment, and defense spending preserved in amber will represent a betrayal, even though it’s a complete impossibility. But after the 1990 sellout on future spending, Republicans will be hugely and rightly critical of gassy promises on spending reductions this time. I don’t know how the two sides get out of that box, but as they fill in details of the agreement next week, that’s going to be a major impasse. An immediate payroll tax cut could act as a stimulus to offset the sort of significant immediate reductions in spending that Keynesians oppose, but somehow I think a “cut taxes and spending right away!” approach won’t go over well with the blue side of the table.

If they can’t make a deal on Sunday, then instead next week I think you’ll see a renewed push behind the left’s lame “debt ceiling is unconstitutional” argument. The liberal powers that be have been inching away from that, with everyone from Barney Frank to rock star law prof Laurence Tribe dismissing it. According to Geithner, in fact, the White House itself thinks it lacks constitutional power to raise the ceiling unilaterally. All of which is lovely, but those reassurances are easy to make when a deal is still viable; in fact, they’re all but obligatory in order not to spook the negotiations with the threat of a power grab. But if things fall apart this weekend and default starts to look plausible, those considerations will no longer apply. Instead, people will be desperate for a Plan B. Cue the Fourteenth Amendment argument — which, as Tribe explains (and as I’ve argued before), won’t work anyway:

So the arguments for ignoring the debt ceiling are unpersuasive. But even if they were persuasive, they would not resolve the crisis. Once the debt ceiling is breached, a legal cloud would hang over any newly issued bonds, because of the risk that the government might refuse to honor those debts as legitimate. This risk, in turn, would result in a steep increase in interest rates because investors would lose confidence — a fiscal disaster that would cost the nation tens of billions of dollars.

Although an authoritative judicial declaration authorizing borrowing above the debt ceiling might alleviate investors’ fears, obtaining such a declaration is no easy task. Only someone who has suffered a “particularized” harm — not one shared with the public at large — is entitled to sue. It would be difficult to conjure up a plaintiff who has suffered such specific harm from an issuance of debt beyond the ceiling. And even if such a plaintiff could be found, increased interest rates would have already inflicted terrible damage by the time the Supreme Court ruled on the matter.

The only way out is a deal, whether long-term or short a la the continuing resolutions Congress used repeatedly during the 2011 budget negotiations to keep those going. If Sunday ends badly, expect plenty of talk about the latter next week too. Exit quotation from Boehner: “I don’t think things have narrowed. I don’t think this problem has narrowed at all in the last several days.”

AP, I recall you shilling for a 2011 budget deal with a similar article only to follow it up with “Uh Oh… conservatives got burned…” after Boehner sold us out.

Trust me, the GOP have only ONE card left to play before the 2012 elections. If they sell us out, they will be placing not only the GOP majority in the House in jeopardy but the leadership positions of the current wimps we have. They can also kiss a Senate majority in 2012 goodbye!

The White House knows it, Dems know it, I wonder why the so-called brightest ones amongst us cannot see we are being played with this “refusal to increase debt ceiling means default…” canard.

You are telling me that I am supposed to believe that the government hard programed a nonadjustable payment schedule into their computers. I call BS. If that is true, how can they add any new payments or increase/decrease rates of payment…or has that never been done? Seems to me like it has.

Having once been a computer science major…this doesn’t pass the smell test for me.

Second, thanks to the horrifying new unemployment numbers, Democrats will be even more insistent on delaying spending cuts until a real recovery has begun.

Wait, what? If the recovery has sputtered this badly since the avalanche of federal spending began in 2009, then why would it justify more spending, or at least keep it the same? Seems to me the jobs number is by far the greatest boon the republican argument that job growth must be “organic” and can’t be centrally planned through massive wealth redistribution, and that it’s time for D.C. to think smaller. And the best way to do that is to begin with a government that’s committed to living within its means.

The GOP can win the debt limit if they use the Ron Johnson argument and refuse to be cowed into any hasty deal.

“Next year, if we don’t increase the debt ceiling, I don’t think anybody is looking at living under a debt ceiling budget for an entire year,” the senator said. “But as opposed to caving, to not getting the fiscal controls we need, if we had to live under a debt ceiling budget for a couple days or a couple weeks, it wouldn’t be the end of the world, if you plan on it.”

That’s because $2.6 trillion would still flow into the Federal Treasury next fiscal year, Johnson explained.
“That is more than enough to make all debt payments,” he said. “It covers 100 percent of Social Security — and still leaves about $1.6 trillion to cover about $2.6 trillion worth of spending. If this administration misses one payment to a Social Security recipient, if they miss one payment to a soldier, if they miss one debt payment, that is a choice they are making. It doesn’t have to be this way if they plan for it.”

The Democrats have known all along that it was important and yet refused to act on it until a month prior to their fictitious deadline? Why just last week, Reid was scheduling a vote for Libya instead of discussing the debt limit. Ron Johnson once again refused to budge and managed to get the Libya vote scrapped.

1. government workers are not the brightest stars in the sky.
2. they only use what is usually the lowest bid items.
3. this program doesn’t surprise me.

upinak on July 8, 2011 at 8:36 PM

I can’t imagine them being able to find a programming team to actually compile a program with such an obvious flaw. I agree with your 3 points though.

I personally think it is simply a lie. It’s so convenient that the Democrats “even if we (they) wanted to” can’t stop the government from defaulting buy cutting a budget. It’s automatic man…the computer can’t be changed.

BS! It’s a shame there are a multitude of computer illiterate people out there who’ll buy this line.

Mr. Obama said, “The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner

that we give our businesses the certainty that they will need in order to make additional investments to grow and hire.”

To me, I see this debt ceiling panic as a means to use the only election tool Obama’s got left: to force a braking off of a large portion of the GOP’s base out of dissatisfaction and a sense of betrayal. That is the only way Obama and the Dems are going to mitigate horrible losses in 2012. If the Repubs stand united, say no to raising the debt ceiling if new taxes are enacted, then we’ll be able to help shape the narrative for 2012. But if the GOP breaks with those who elected them, then it’ll be really tough for the GOP to find the support it needs from its base.

The problem that our politicians are facing is that anything that will lessen the impact of the current economy will extend the duration. We probably had one year of 20% unemployment baked into the cake, but they tried to push it down to the current 16% unemployment….and thereby extended it to a lost decade.

Now that they’ve half-cooked it to 16% unemployment for 10 years by borrowing 10% of the economy each year, they’d go to 25% unemployment if they turned off the spigot….but it might get us to where things could improve in only a year if we took that medicine.

Mr. Obama said, “The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner

that we give our businesses the certainty that they will need in order to make additional investments to grow and hire.”

Maybe if Mr. Obama spends less time tilting the marketplace to favor his union, as in the Boeing case, businesses will have the certainty to hire.

I personally think it is simply a lie. It’s so convenient that the Democrats “even if we (they) wanted to” can’t stop the government from defaulting buy cutting a budget. It’s automatic man…the computer can’t be changed.

BS! It’s a shame there are a multitude of computer illiterate people out there who’ll buy this line.

Pattosensei on July 8, 2011 at 8:45 PM

I agree.

I have a question for those out there. What if we just turn off the computer that is running said program? (Or close the program either or)

Why do we need a President after all? The agencies are run by computer and we have an autopen. Just get rid of the job and make things much simpler. And we won’t have to pay for the Missus’s food bills either. Win/Win.

Do the computers also control their own source of power? Gimme a break. Either this is BS or they are trying to dumb things down “in a way average people can understand.” Why can’t they just turn off the computers?

In 1985, Congress waited nearly three months after the debt limit was reached before authorizing a permanent increase. In 1995, 4 1/2 months passed between hitting the ceiling and congressional action. And in 2002, Congress delayed raising the debt ceiling for three months. In each case, the U.S. and the economy survived.
Not only did the economy survive, but the United States did not default on its debt obligations, the United States did not lose its credit rating, and interest rates did not go up as a result of the default.
To say that failing to raise the debt ceiling will cause a default is a lie and anyone who says it is a liar.
If we fail to raise the debt ceiling and do default, it will not because because of a failure to raise the debt ceiling. It will be because Barack Obama and Tim Geithner chose to default for political gain.
Aa Senator Toomey points out
[A]s the Congressional Research Service has noted, the Treasury secretary himself has the discretion to decide which bills to pay first in the event that a cash flow shortage occurs. Thus, it is he who would have to consciously, and needlessly, choose to default on our debt if the debt ceiling is not promptly raised upon reaching it. It takes a lot of chutzpah to preemptively blame congressional Republicans for a default only he could cause.

Here’s how you get out of the box: Spending/budget bills originate in the House. The House should pass a bill to raise the debt ceiling contingent on $4 trillion in spending cuts and no tax hikes. Dare Obama and the Democratic-controlled Senate to veto it and cause a national default. He’ll roll; he’s incredibly weak because of the economy and desperate to win back indies by appearing to orchestrate a deficit-reduction/debt-ceiling deal. He does not care about the details (see: The Stimulus, Obamacare, budget negotiations following 2010 midterms), he only cares about getting something, anything, passed and presenting himself as the adult in the room who made passage possible. He’ll roll.

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Heh, when 0bama was complaining about ATM’s…. maybe he knew something we didn’t.
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But then, if the Treasury Computers have become self aware, wouldn’t computer logic be able to figure out that we can’t continue to spend?

What ever happens will be blamed on the Republicans, whether they raise the debt ceiling and tank our credit rating, whether they don’t and the budget gets vetoes until the government defaults, or whether the President starts a constitutional crisis by trying to pull the 14th.

The question isn’t whether we’re going to get hung, or not; the question is are we going to be hung for a wolf, or hung for a sheep.

The problem that our politicians are facing is that anything that will lessen the impact of the current economy will extend the duration. We probably had one year of 20% unemployment baked into the cake, but they tried to push it down to the current 16% unemployment….and thereby extended it to a lost decade.

Now that they’ve half-cooked it to 16% unemployment for 10 years by borrowing 10% of the economy each year, they’d go to 25% unemployment if they turned off the spigot….but it might get us to where things could improve in only a year if we took that medicine.

It’s helpful to reflect on what has happened before.

cthulhu on July 8, 2011 at 8:53 PM

That, and they are desperately trying to keep wages from adjusting down to market level. Frankly, if wages were more free to respond to the market (and there was no minimum wage), unemployment wouldn’t be a meaningful statistic.
Actually, that has me thinking: are there mechanisms built into unemployment insurance that prevent the lowering of wages? The payment of benefits hinges on weather a person is technically laid off or fired/quits, and every time an employer lays someone off, that employer has to pay more into unemployment insurance. So, if employers were free to lower wages, they would just lower the wages of employees they want to get rid of until either they quit or they actually earn that wage. As such, given that lay-offs do happen, I can only assume that there are laws preventing employers from lowering wages. If that is true, then those laws would be the first cause of unemployment.
Does anyone know employment law well enough to verify this?

If Treasury were to decide to delay payments, it would need to re-program government computers that generate automatic payments as they fall due — a massive and difficult undertaking. Treasury makes about 3 million payments each day.

I worked for the gov programming computers, although not SSA disbusements

What the Hill are they talking about?

If this is true let me look at the system. I think about 3 million gov employees ought to be fired and the 209K contractors who do the heavy lifting